Get the Forex Forecast using fundamentals, sentiment, and technical positions analyses for major pairs for the week of August 1, 2022 here.
The difference between success and failure in Forex / CFD trading is very likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.
So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment. Read on to get a weekly analysis below.
Fundamental Analysis & Behavioral Sentiment
On Wednesday of last week the U.S Federal Reserve surprised absolutely no one. The U.S central bank raised their key interest rate by 0.75%, which was widely expected and simply met expectations.
However, after the interest rate hike it was Fed Chairman Jerome Powell’s comments that soothed the hearts of financial houses. He allowed a bit of hope into his words, when he spoke about the potential the Federal Reserve would be able to become less aggressive regarding its interest policy potentially at the end of the year. Yet, skeptical analysts and experienced speculators remain suspicious of the U.S Federal Reserve and its ability to ‘control’ the U.S economy.
The USD/JPY, GBP/USD and S&P 500 will all merit plenty of attention this week, as investment companies and traders react to last week’s rather strong reactions in Forex and equity indices via technical and behavioral sentiment:
- The USD/JPY and the other major currency pairs all reacted with strong moves.
- The USD did loss value in Forex on Thursday and Friday as financial houses seemed to be pleased by the outcome of the U.S Fed’s pronouncements.
- The interest rate hike of 0.75% brought the key U.S lending rate to 2.50%.
- However, not all is clear regarding the U.S economy, because while Advance GDP tumbled lower and caused talk about a recession on Thursday, Friday’s core consumer price index numbers came in higher than expected – which will likely set off a loud debate about the direction of the U.S economy and what the Federal Reserve should do next.
- Global equity indices mostly gained the past week and USD lost some power, but commodity prices did incrementally gain too in many respects –which could cause suspicions and worry about inflation.
The Week Ahead: 1st August – 5th August 2022
The USD/JPY was a good reflection of trading results across the Forex spectrum the past week as volatility increased in the hours ahead of the U.S Fed announcement, but then began to exhibit strong selling of the USD. The USD/JPY will open this week of trading near important support ratios.
Speculators perhaps should practice some caution as the USD/JPY opens for trading on early Monday, and be on the lookout for the potential of momentary reversal higher as financial houses seek equilibrium. Meaning that Friday’s selloff may have been slightly overdone in some eyes and buying may ensue on the opening. However, if the USD/JPY does not see solid buying early this coming week, it could be a legitimate signal that investment houses perceive the USD/JPY is still in overbought territory.
If the USD/JPY were to break below the 133.000 ratio and actually start to display the potential of challenging the 132.500 level this would be intriguing. However technically the USD/JPY remains within the highest elements of its long term range. If nervousness about the U.S Federal Reserve’s policy compared to the Bank of Japan’s pronouncements remains in stark contrast, the USD/JPY may be able to maintain the higher realms it is situated.
Traders should be prepared for choppy conditions in the coming days. On Friday from Japan there will be Household Spending data presented. While this is not considered the most important statistical evidence regarding the Japanese economy, it will give insights into the spending habits of the Japanese as some inflation hits their domestic landscape.
The USD/JPY may challenge support levels below, but from a momentum perspective traders should not become overly ambitious. There is a reasonable amount of suspicion that the USD/JPY could react with reversals higher if the 132.00 to 133.00 ratios are tested. Speculators should be careful, because the USD/JPY is capable of produced lightning quick results.
USD/JPY Weekly Chart
A Question of Who Do You Believe and Contrarian Economic Data will Stir Nervousness
Last week’s results via economic data combined with the U.S Federal Reserve’s interest rate hike are sure to cause a firestorm of debate and perhaps even anger. The Fed’s move was widely anticipated, but the rather poor showing from the U.S Advance GDP and a result of minus -0.9% had the White House administration reacting in a manner that can be perceived as distasteful; some may call their words a bold lie.
The Biden administration was quick to claim the U.S is not in an official recession. However, financial houses will view the White House’s words as semantics. Meaning they do not believe what is being said. And to add fire to the rather political interpretation of economic data which shows the American economy is slowing was Treasury Secretary Janet Yellen’s comments that she did not believe the U.S was in a recession. It should be noted that Yellen was one of a cast of characters who said U.S inflation last year was transitory. Cough, cough.
U.S jobless numbers will be published this coming week and while day traders will get plenty of updates from their brokerage services about the Non-Farm Employment Change data and its significance, it is really the U.S Average Hourly Earnings data that should be given attention this coming Friday. The U.S is still suffering from inflation, this as the U.S Fed keeps increasing interest rates and refuses to acknowledge a recession. Earnings number will be important, because if they show a gain it will mean employers are still under pressure to give their workers more pay even as their businesses suffer.
The word stagflation comes to mind. However, even as the word is thought out and perhaps considered equity indices did rather well for the second week in a row. Traders should however be careful because the upside momentum could come to a halt if behavioral sentiment were to suddenly shift again. Economic data from Europe, interest rate policy from the Reserve Bank of Australia and England will be delivered this week along with U.S numbers.
10 Key Data Points for the Coming Week Traders Should Watch:
Germany: Retail Sales – Monday
U.S: ISM Manufacturing PMI – Monday
Australia: RBA Cash Rate – Tuesday
New Zealand: Employment Change – Wednesday
U.S: ISM Services PMI – Wednesday
U.K: BoE Monetary Policy Report – Thursday
U.K: BoE Official Bank Rate – Thursday
Japan: Household Spending – Friday
U.S: Average Hourly Earnings - Friday
U.S: Non-Farm Employment Change – Friday
GBP/USD Produces Gains as the Bank of England awaits and is prepared to Hike Again
The GBP/USD climbed in value towards the end of last week mirroring many of the major currencies. The GBP has struggled the past handful of months, but as the political situation begins to show signs of clarity and the Bank of England continues to react with interest rate hikes that mimic the U.S Fed, investors may stay rather calm.
The GBP/USD did climb to nearly 1.22500 late last week, before reversing lower. However, the GBP/USD did remain within its short term upper realms and trading this week should be opportunistic for traders looking to wager. The long term bearish trend may be called into question, but will the recent move higher really a signal that buying will prove durable? Traders should expect choppy condition this week. Yes, the Bank of England will supposedly raise its interest rate, but this is known and has been digested into the GBP/USD currency pair already.
If the GBP/USD can open the week with sustained value near the current price and then stage an incremental climb above the 1.22000 ratio this could intrigue buyers and cause them to become more bullish. The Bank of England’s announcement will be on Thursday, but traders will be fully active before the interest rate hike.
The GBP/USD may have some additional room to climb, but traders should not be tempted into targeting unrealistic goals. If the GBP/USD were to go above the 1.22500 level and finish above this value it could be interpreted as a bullish signal. However moves lower which test the 1.21000 mark should be considered too.
GBP/USD Weekly Chart
S&P 500 Moves Upward as Investors Rush in, Questions Remain However
The S&P 500 produced another solid week of gains and is above the 4000.00 mark with a healthy total. Two weeks of solid gains may be wetting the appetite of speculators who have watched equity indices gain and believe more is to come. Earnings season has had little effect on the rather bullish perspectives shown by investors the past couple of weeks. Investment houses may believe the U.S Federal Reserve will be forced to curtail its hawkish policy sooner rather than later. And perhaps they are correct.
However, the long bearish trend of U.S equities should not be forgotten. Yes, the gains produced the past two weeks will continue to get plenty of attention, and media sources and investors who want you to buy will let you know the gains made the past two weeks are significant. Timing market trends remains extremely difficult; perhaps traders who missed the past two weeks of upside will be tempted to buy now. Is there additional room to traverse higher, the simple answer is yes. However caution is needed too.
The month of August it should be remembered is when financial houses tend to have their workers go on vacation. Typically there is little news and only murmurs of debates regarding the economy. However this is not the case this August, questions remain highlighted regarding the U.S economic landscape and there is little in the way of clarity.
Energy prices remain elevated and a concern, and two weeks of gains by stocks are not enough to make people forget the downside which has been demonstrated strongly since the beginning of 2022. Traders need to use risk management wisely and not be over leveraged if they are going to pursue buying positions this coming week in equity indices. Buying may be the correct short term wager, but it could still prove dangerous.
Choppy conditions are a certainty in Forex this coming week as investment houses react to the strong selloff of the USD across the board and Equity indices need to be watched with caution as optimism rattles in the minds of speculators:
- If the USD/JPY falls below the 133.000 level this would prove interesting, but may set up an opportunity for reversals higher to be ignited which look for quick hitting profits in a whipsaw forex market.
- The GBP/USD having produced solid gains last week remains under the shadow of central bank scrutiny, but bullish behavior may have room to traverse higher. However, fast conditions will certain produce choppy results as investors try to find ‘fair’ equilibrium.
- The S&P 500 along with its major counterparts of equity indices did very well. The two week climb upwards is significant, but traders should remain somewhat cautious because U.S economic outlook remains troubling.
- Energy prices remain a concern and continue to keep inflation elevated; until energy prices via Crude Oil fall significantly investors may remain nervous about economic knock on effects.